A fight is emerging in Washington over how best to get more money into people’s pockets to weather the coronavirus pandemic.
President Trump is making a payroll tax cut a priority for a future recovery package, but Democrats, as well as some Republicans, are not keen on that idea. Democrats argue that a better option is to provide Americans with direct payments like the ones mandated by the $2.2 trillion coronavirus relief package Trump signed on March 27.
Trump described a payroll tax cut as a must-have for the next coronavirus relief bill during a Fox News virtual town hall on Sunday.
“We’re not doing anything unless we get a payroll tax cut,” he said. “That is so important to the success of our country.”
Reducing payroll taxes is an idea championed by conservatives with connections to the president. They argue that it could be a way to encourage people to work after Congress passed an expansion of unemployment insurance that has resulted in some people receiving more money in unemployment benefits than they would be receiving in wages had they not lost their jobs.
Stephen Moore, who served as an adviser to Trump’s 2016 campaign and is chair of FreedomWorks’s task force on economic revival, said he’s been pitching the White House on a payroll tax suspension, though the exact details would be negotiable.
He argues it would be good for growth and hiring, and popular with the public.
“We’ve got to get people back on the job,” Moore said.
Rep. Kevin Brady (Texas), the top Republican on the House Ways and Means Committee, said on Fox Business Network on Friday that he had been “lukewarm” about payroll tax holidays in the past but is now warming up to the idea. He said he thinks the generosity of the unemployment insurance expansion “is unhealthy in the long run” and said that workers could benefit from a pay raise.
“I do think of all the options that Congress is weighing about more economic support, I would think considering the complete payroll tax holiday for the workers is far more efficient than perhaps another round of economic impact statements,” Brady said.
In an op-ed in The Hill on Sunday, Sen. Ted Cruz (R-Texas) called for the elimination of payroll taxes for employers and employees for the rest of the year.
A spokeswoman for the senator said Tuesday that an employee-side cut would help to make work more attractive for people on the margin and that an employer-side cut could give businesses more liquidity.
Employers and employees each pay 6.2 percent of wages in Social Security payroll taxes and 1.45 percent in Medicare payroll taxes. Social Security payroll taxes don’t apply to people’s wages above $137,700 in 2020.
Trump had previously expressed interest in a payroll tax cut in March, as businesses and schools started to close because of the outbreak. But lawmakers on both sides of the aisle expressed skepticism, and the administration shifted gears to pushing for sending direct payments to Americans.
“The payroll tax holiday would get people money over the next six to eight months. We’re looking to send checks to Americans immediately,” Treasury Secretary Steven Mnuchin said at the time.
The $2.2 trillion CARES Act included a provision that provides one-time direct payments of up to $1,200 per adult and $500 per child and another provision that allows businesses and self-employed individuals to defer payment of employer-side Social Security payroll taxes, as well as the boost to unemployment insurance.
While Trump has renewed his desire for a payroll tax cut, Democrats remain opposed to the idea, arguing that a reduction in payroll taxes wouldn’t help the tens of millions of Americans who are out of work because of the pandemic.
“A payroll tax cut would do nothing for the more than 30 million Americans who are unemployed through no fault of their own, while showering the country’s biggest businesses with billions,” said Sen. Ron Wyden (Ore.), the top Democrat on the Senate Finance Committee.
That viewpoint is even shared by some Republicans.
Sen. John Thune (S.D.), the second highest ranking Senate Republican, said Tuesday that a “payroll tax cut only helps if you’re on the payroll.”
Democrats and Social Security advocates have also expressed concerns that a payroll tax cut could be harmful to the retirement program.
“A payroll tax cut may seem appealing but would actually weaken Social Security and greatly benefit corporations, while hurting those who need its benefits the most,” Rep. John Larson (D-Conn.) said in a statement Monday.
As a way to provide more economic relief to Americans, Democrats have been pushing for additional direct payments, beyond the one-time payments in the CARES Act. Many progressives are interested in people receiving payments on a monthly basis.
Democrats and progressive groups have also defended the expansion of unemployment insurance, arguing that the average jobless benefit before the expansion was only a fraction of pre-unemployment wages and it would be problematic if suddenly tens of millions of people had significantly less money than they had before they lost their jobs due to the pandemic.
“The idea that that in any way is a contributor to the current economic problems is so wrong that I don’t even want to rebut it because rebutting it gives it more credibility than it is due,” said Michael Linden, executive director of The Groundwork Collaborative, a progressive advocacy group.
Some top Republicans have also expressed skepticism about a payroll tax cut, while others have not endorsed the president’s idea.
A spokesman for Senate Finance Committee Chairman Chuck Grassley (R-Iowa) said this week that it’s too early to say what might be included in a subsequent coronavirus bill.
When Senate Majority Leader Mitch McConnell (R-Ky.) was asked on Tuesday whether he views a payroll tax cut as a must-have like Trump does, he said that if Senate Republicans have any red line, it’s on protection from litigation for those who have been on “the front lines.”
Tax policy experts said the content of the next coronavirus package will depend on whether the outbreak has subsided and what kind of shape the economy is in when the legislation moves forward. They said a payroll tax cut might make more sense when the economy starts to reopen more fully and people have more of a desire to leave their homes and spend money.
“It would seem more appropriate if we were thinking of reopening the economy soon,” said Kyle Pomerleau, a resident fellow at the right-leaning American Enterprise Institute. If the focus of the next bill remains providing economic relief while people stay at home, a payroll tax cut would be “somewhat inappropriate,” he added.
The timing of a future major coronavirus package is unclear. House Democrats have expressed an interest in moving quickly, while Senate Republicans want to move more slowly to first evaluate which parts of previous bills are working and which aren’t. And Republicans and Democrats have disagreements over key issues such as liability protection and aid to state and local governments.
“My sense is it’s going to take at least the month of May to figure out what the next big bill looks like,” said Rohit Kumar, a former McConnell aide who now works at PwC.
– Jordain Carney contributed.